ECON 1000 Chapter Notes - Chapter 15: Marginal Revenue, Marginal Cost, Nash Equilibrium

• School: York University
• Department: Economics
• Course: ECON 1000
• Professor: Steven Edwards

Document Summary

Oligopoly is a market structure in which. Econ 1000 chapter 15. 2 oligopoly: natural or legal barriers prevent the entry of new firms, a small number of firms compete. Oligopoly is studied using game theory, which is a method of analyzing strategic behavior. Priso(cid:374)er"s dile(cid:373)(cid:373)a: two prisoners acting in their own self-interest harm their joint interest. An oligopoly (duopoly) price-fixing game is a priso(cid:374)er"s dile(cid:373)(cid:373)a i(cid:374) (cid:449)hi(cid:272)h the firm might collude or cheat. Nash equilibrium: both firms cheat and output and price are the same as in perfect competition. Fir(cid:373)"s de(cid:272)isio(cid:374)s a(cid:271)out advertising and r&d can be studied using game theory. Interdependence: with a s(cid:373)all (cid:374)u(cid:373)(cid:271)er of fir(cid:373)s, ea(cid:272)h fir(cid:373)"s profit depe(cid:374)ds o(cid:374) e(cid:448)ery fir(cid:373)"s a(cid:272)tio(cid:374)s. Temptation to cooperate: firms in oligopoly face the temptation to form a cartel: cartel: group of firms acting together to limit output, raise price, and increase profit.